Is Financial Woe A Justifiable Reason To Break A Promise?

July 27, 1986|By Dick Marlowe of The Sentinel Staff

When Joe came out of the Navy in 1946 and started looking for a job in Chicago, he settled on a position offered by Republic Steel. His main reasons for taking the job were good pay and good benefits. In short, the job promised a secure future.

Over the years, Joe worked his way into a supervisory position, putting in 30 years with the company. He took early retirement in 1976. Since that time, his monthly pension check of $700-plus has arrived without interruption. On Monday, however, a letter arrived that rocked the world for Joe and his wife -- a very real Orlando couple now in their 60s.

LTV Corp., parent of Republic Steel, gained national attention last week when it filed for protection under federal bankruptcy laws. The letter got to the point in the fifth paragraph. ''Because of restraints imposed by Chapter 11,'' the letter said, ''. . . monthly funding (pension) can no longer be continued by the company. This will most likely result in the termination of the plan by the Pension Benefit Guaranty Corp. Therefore, we anticipate that future payments from this plan will become the responsibility of the PBGC. Also, some retiree benefits may be reduced as a result of PBGC's guarantee limits.''

Tough words to hear. But that wasn't the end of it. ''For similar reasons,'' the letter continued, ''the life insurance coverage and medical insurance coverage that has been paid for by LTV Steel can no longer be provided.''

After getting over the initial shock and bewilderment, the Orlando retirees went to a local insurance company to determine what it would cost to obtain the same insurance benefits they had been receiving for a deduction of $30 a month from their pension check. It would cost about $130 a month.

Meanwhile, there is the agony of waiting -- of learning what the outcome will be. Will the pension checks be continued in the same amount? Is it possible that they will not come at all?

If there are questions, the letter said, submit them in writing, or call a number where the telephone is set up to record messages. A response will be provided ''at the earliest practical time.''

From Joe's point of view, a company is reneging on a promise he believed to be chiseled in granite and backed up by government guarantees. Like most of us, he does not consider his pension and his insurance gratuitous gifts from the company for which he worked, but as a part of his wages and conditions of employment in return for his labors.

The big question is whether corporations can walk away from obligations and promises to former employees simply by filing for reorganization.

Unfortunately, LTV's filing for protection from creditors could cause a chain reaction. Armco Inc., the nation's No. 5 steelmaker, has closed a Minnesota iron-ore venture in which it had been a partner with LTV. As a result, Armco has inherited significant debt associated with that project. Meanwhile, Armco faces a payment of $85 million into its own pension plan on Sept. 15. Although Armco has indicated that it intends to meet that deadline, it made a request last year to waive the payment but was turned down by the Internal Revenue Service.

Meanwhile, labor unions are up in arms about a new menace -- what it terms ''pension raiders.'' For about two years, the AFL-CIO has been warning that company managements are using ''absurd economic assumptions'' to raid pension funds of billions of dollars in so-called ''excess'' assets. The PBGC has approved 856 pension-plan terminations since 1980 -- handing about $9.4 billion to managements to use as they please.

The AFL-CIO contends that surpluses exist on paper only.

Maybe it is time for Congress to enact a moratorium on applications for pension-fund termination and take a hard look at the entire pension problem before it gets out of hand.